Opinion
Civil Action No. SA-01-CA-0937 FB (NN).
March 21, 2005
The matter before the court is plaintiffs' Request for Discovery Due to Defendants' Violations of This Court's Order (docket entry 35) and defendants' Cross-motion for Protective Order. After considering plaintiffs' motion (docket entry 35) and defendants' motion (docket entry 44), the pleadings filed in support of, and opposition to, the same (docket entries 37, 44, 47, and 50), and the applicable authority, plaintiff's motion will be GRANTED and defendants' cross-motion for protective order will be GRANTED for the reasons set forth, below. I have jurisdiction to enter this order under 28 U.S.C. § 636(b) and the District Court's Order referring the motion to show cause (docket entry 29) and all matters attendant thereto to me for disposition by order, or to aid in their disposition by recommendation where my authority as a Magistrate Judge is statutorily constrained.
Docket Entry 34.
This case was initially filed in this court on October 15, 2001 (docket entry 1). After limited pleading and activity in the case, the parties brought a Motion for Entry of Agreed Judgment and Permanent Injunction on April 3, 2002 (docket entry 27). On April 5, 2002, Judge Biery granted the aforementioned motion holding, in pertinent part:
Defendants are permanently enjoined from using the mark HAIRMASTERS, or any mark confusingly similar thereto, for men's and women's hair cutting, styling, coloring, perming, and nail care services in Bexar County as well as counties contiguous to Bexar County, for so long as Plaintiffs have not abandoned the HAIRMASTERS mark. All other relief requested by either party and not expressly granted herein is DENIED.
Docket Entry 28, at 1.
On November 4, 2004, plaintiffs brought a Motion for Order to Show Cause Why Regis Corporation Should Not Be Held in Contempt (docket entry 29). In its motion, plaintiffs asserted that defendants continued to use the HAIRMASTERS mark, a "clear and intentional violation of the Permanent Injunction." Plaintiffs requested that "an order be issued requiring Regis Corporation to appear before this Court and here show cause why it should not be adjudged in contempt of this Honorable Court." Defendants filed their response to plaintiffs' motion on December 14, 2004, stating, in pertinent part, that "this Court should not hold Regis in contempt because compliance with the injunction has been made impossible by events beyond Regis's control." Plaintiffs filed a Reply on December 22, 2004, arguing:
Regis desperately and vainly attempts to shift the blame to others for Regis's failure to comply with the Court's Order. Such blame shifting attempt does not absolve Regis of its responsibility to comply with the Court's Order . . . Despite its plethora of excuses, there can be no other conclusion: Regis violated the Court's Order. Regis is in contempt. Regis is subject to sanctions.
Docket Entry 29, at 4.
Docket Entry 32, at 1.
Docket Entry 33, at 1.
On January 7, 2005, plaintiffs filed a Request for Discovery Due to Defendants' Violation of this Court's Order (docket entry 35). Plaintiffs argue that they are entitled to recover defendants' profits from their violation of the injunction and their infringement of plaintiffs' mark under 15 U.S.C. § 1117. As such, plaintiffs request limited discovery in the form of depositions to establish, "(a) the willful and flagrant nature of Defendants' violations and (b) damages from such violations."
Docket Entry 35, at 2.
In opposition to plaintiff's motion for discovery, defendants assert that plaintiffs are not entitled to discovery as to defendants' attempts to comply with the court's injunction. Defendants allege that they have
supplied complete information regarding their efforts to comply with the Court's order in the declaration testimony attached as Exhibit A to Defendant's Response to Plaintiff's Motion for Order to Show Cause . . . That declaration outlines, in detail and in chronological order, each action taken by Regis to effectuate proper telephone-book and directory-assistance listings for Regis's San Antonio area salons. Plaintiffs would not obtain any further information by conducting costly and time-consuming depositions . . . or by propounding interrogatories and requests for document production.
Docket Entry 37, ¶ 1(b).
Defendants further argue that the correct measure of plaintiffs' damages, should plaintiffs prove they are entitled to the same, is not defendants' profits. Therefore, defendants contend that discovery regarding defendants' profits is improper.
Docket Entry 37.
After defendants filed their initial pleading in opposition to plaintiffs' motion for discovery and the parties participated in an unsuccessful mediation, defendants filed a supplemental response to plaintiffs' request for discovery. Plaintiffs filed a reply to defendants' response to which defendants filed a sur-reply. The issues before the court are: (1) whether plaintiffs are entitled to the requested discovery; and (2) whether defendants are entitled to a protective order regarding the same.
Docket Entry 44.
Docket Entry 48.
Docket Entry 50.
1. Plaintiffs' request for discovery (docket entry 35) and defendants' cross-motion for protective order (docket entry 44)
Plaintiffs have requested discovery on the issues of defendants' efforts to comply with the permanent injunction, as well as defendants' profits. The issue of discovery on defendants' profits will be addressed first.
Defendants vehemently assert that their profits — or any defendants' profits — are not an appropriate measure of damages. Specifically, defendants argue that the measure of damages available in a civil action for contempt is the plaintiff's actual loss. Defendants contend that the authorities on which plaintiffs rely (for the proposition that defendants' profits are the measure of damages) are antiquated or erroneous because amendments to the Patent Act make it clear that a plaintiff may only recover its actual loss.
Defendants' interpretation of the law is incorrect. The cases cited by defendants — National Labor Relations Board v. Laborers' International Union and Thyssen, Inc. v. S/S Chuen On — are importantly distinguishable from the instant case because the civil contempt at issue in those cases did not involve contempt of an injunction prohibiting use of a mark.
Nat'l Labor Relations Bd. v. Laborers' Int'l Union, 882 F.2d 949, 955 (5th Cir. 1989).
Thyssen, Inc. v. S/S Chuen On, 693 F.2d 1171, 1173 (5th Cir. 1982).
Of the cases cited by the parties, the ones most factually apposite to the instant case are the Manhattan Industries, Inc. and Cancer Research Institute cases. In those cases, the defendants were found to have violated permanent injunctions which enjoined their use of the plaintiffs' marks. The Cancer Research Institute case even involved an injunction prohibiting the defendants' ability to list or advertise itself in a telephone directory under a particular name — one of the very actions at issue in the instant case. Both the Manhattan Industries, Inc. and Cancer Research Institute cases found that the respective plaintiffs could recover the defendants' profits under an unjust enrichment theory. Citing Manhattan Industries, Inc., the Cancer Research Institute Court held:
Manhattan Indus., Inc. v. Sweater Bee by Banff, Ltd., 885 F.2d 1 (2nd Cir. 1989).
Cancer Research Institute, Inc. v. Cancer Research Society, Inc., 744 F.Supp. 526 (S.D.N.Y. 1990).
When actual loss cannot be demonstrated, plaintiff is entitled to compensatory damages under an unjust enrichment theory. There, plaintiff may recover defendant's net profits derived from the continued use of the prohibited listing after the injunction issued. See Manhattan Indus., 885 F.2d at 7. The Court presently is unable to compute what profits defendant derived from the presence of the prohibited listing in directories after the injunction issued. Plaintiff must conduct discovery on this issue. Accordingly, plaintiff shall complete discovery on the question of what portion of defendant's net profits it is entitled to for the period after the injunction's issuance through the last date a then-current directory carried through the prohibited listing.
Cancer Research Institute, Inc., 744 F.Supp., at 531 (emphasis added).
Defendants attempt to argue away the relevance of Manhattan Industries, Inc. and Cancer Research Institute on the following grounds: first, that those cases were decided by the Second Circuit and plaintiffs have failed to proffer any Fifth Circuit authority embracing those cases or their holdings; second, that those cases were "wrongly decided because they improperly rely on Leman for the profit-recovery holding, even though Leman has no applicability to a trademark case, especially after the 1946 Patent Act . . ." and three, that the aforementioned-cases are "readily distinguishable because of their findings of actual harm to the complainant before awarding the contemnor's profits."
Docket Entry 47, at 4.
I find defendants' arguments unavailing. Defendants have failed to cite any Fifth Circuit authority which directly declines to extend the analysis of the Second Circuit cases or which directly undermines the holdings therein with respect to cases involving contempt of an injunction on a trademark. Given the factual similarities between Cancer Research Institute and the instant case, I find the Cancer Research Institute holding applicable to this case. Similarly, defendants' arguments that amendments to the 1946 Patent Act affect a civil action for contempt of an order enjoining the use of a trademark (as opposed to a patent) are not persuasive. The fact that a defendant's profits are available — even in the absence of proof of actual damages — in an action for contempt of a court order enjoining use of a trademark has been established in the case authority and recognized in the leading treatise on trademarks:
Notably, the Cancer Research Institute, Inc. Court also decided that discovery was appropriate on the profits and damages issues. Cancer Research Institute, Inc., 744 F.Supp., at 531.
Plaintiff may recover defendant's profits made as a result of the contemptuous conduct. The Second Circuit has remarked: `There is no doubt that an accounting of profits may be had by the complaining party in a contempt case to deter future infringements.' The Second Circuit has said that profits can also be recovered under a theory of unjust enrichment, emphasizing that neither willful contempt nor proof of lost sales is a prerequisite for a monetary award. Similarly, the Eleventh Circuit has held that an award of profits may be grounded on a theory of unjust enrichment, holding that it was proper to award profits made by contemnor, based upon a theory of unjust enrichment, rather than a theory of damage to plaintiff. Thus, the trademark owner need not prove actual damage in order to recover the profits of the party in contempt of the court order. Profits or damages may be multiplied in a case of a willful and blatant contempt.
5 J. THOMAS McCARTHY, McCARTHY ON TRADEMARKS AND UNFAIR COMPETITION § 30.27 (4th Edition, 2004) (internal citations omitted) (emphasis added).
For these reasons, it is my finding that plaintiffs may conduct some limited discovery on defendants' profits. Of course, the ultimate question of disgorgement of defendants' profits for violation of the injunction is still to be decided. Because the availability of defendants' profits, as well as other recovery, depends, in part, on defendants' attempts to comply with the injunction, I further find that limited discovery on that issue is warranted. However, the discovery should be limited to only that which is reasonably necessary. Consequently, defendants' request for protective order that both limits discovery and allows for "equivalent discovery" is GRANTED.
Thus, I hereby GRANT plaintiffs' request for discovery and GRANT defendants' motion for protective order. Plaintiffs may propound no greater than fifteen (15) interrogatories and fifteen (15) requests for production regarding information as to defendants' attempts to comply with the injunction and defendants' profits for the years at issue. Defendants are similarly entitled to propound the same number of interrogatories and requests for production as to plaintiffs' damages. Further, the parties may each take one deposition of the corporate representative with knowledge of the relevant facts pursuant to Federal Rule of Civil Procedure 30(b)(6). Given the procedural posture of this case, the parties are encouraged to work with each other to obtain the necessary discovery quickly and efficiently.
It is SO ORDERED.